Unexplained statistics can be stubborn and misleading things. This fact has never been truer than for the 2008 $5m+ luxury residential real estate market in Manhattan. Taken as a whole, 2008 was record breaking in every category. The $5m+ cooperative, townhouse and condominium markets blew through all previous records with double digit increases in total volume as well as the number of sales. Likewise, the number of sales over $20m almost doubled in 2008 over 2007 as trophy properties drove the market. That was then and this is now.

Clearly, the first half of the year was sufficiently strong to statistically overcome the increasing weaknesses in the market in the last half of 2008. Sales of cooperatives fell 37.9% in the second half of 2008 versus the same period in 2007. Oddly, townhouses do not seem to have fallen quite so drastically and condominium re-sales reportedly fell in the range of 25%. As the unprecedented unraveling of the financial markets deepened throughout the second half of 2008, and continues into 2009, there has been a structural shift in the luxury market as the impact of the investment banking model meltdown and the Ponzi scheme of Bernard Madoff is felt by the very wealthy. Previously, the luxury segment dominated the market and yet currently it is not possible to determine the price declines in this sector because there is simply not enough empirical data to suggest a pattern. It is now the market under $5m which is in the lead where there have been enough transactions to determine that this market has seen price decreases of 15-20%.

Though our luxury market is clearly in a downturn, 2008 as a whole is not to be ignored. It is still worthwhile to look at what was an amazing year in Manhattan’s luxury residential market. And, while 2008 may appear to have been a swan song, we must remember that this, too, shall pass.

Cooperatives: While 2007 saw a slight decline in the total volume of $5m+ cooperative sales as well as in the number of sales due to a lack of inventory, 2008 more than made up for it. Total dollar volume went up 32.3% to $1,700,965,161 in 2008 versus $1,286,683,310 in 2007. Both of these statistics reflect an increase in quality inventory. The total number of sales increased 22.6% to 157 versus 128 in 2007. The average price increased 7.8% to $10,834,173 in 2008 from $10,052,213 in 2007 and the median sale rose 3.3% to $7.75m in 2008 from 2007’s $7.5m. As one might expect, the last half of 2008 caused the spread between asking price and sales price to increase to 3.5% from 2.2% in 2007; however, the percentage that sold at or above asking price remained relatively unchanged at 40.1%. Possibly the statistic that most represents the heady end of this cycle is the almost doubling of the number of cooperatives sold over $20m to 20 in 2008 from 11 in 2007. Also telling is that only 4 of the 20 such sales closed in the last half of 2008.

The highest cooperative sale in 2008 was a record $48.836m versus $37.5m in 2007. The 2008 sale has the interesting distinction of having sold twice during the year. This large duplex penthouse at 1060 Fifth Avenue had been purchased earlier in the year for $46m but quickly resold when the owners decided not to undertake the large renovation. Therefore, this property was both the highest and third highest sale in 2008. The second highest cooperative sale was at 2 East 67th Street for $48m. At about 6,000 square feet, it sold at $8,000 per square foot. Prior to these three sales over $40m, the only other cooperative to sell in this category was the Lawrence Rockefeller triplex penthouse at 834 Fifth Avenue for $44m in 2005 to Rupert Murdoch.

The reality check comes in the form of current contracts signed versus last year. In mid January, 2008, there were 79 cooperatives in contract over $5m, of which 9 were over $20m. Currently there are 8 cooperatives over $5m in contract and only one has an asking price of $20m.

Then there is the inventory level. Granted that 2007 was an inventory-starved market and 2008 achieved its pinnacle due to some new, quality listings. Still, it has been over a decade since the IRS eliminated the rollover of the Capital Gains Tax, which discouraged empty nesters from downsizing and put a stranglehold on inventory, until now. As we enter 2009, there are 219 active $5m+ cooperative listings, 29 of which are over $20m and up to $43m for either the third floor at 2 East 67th Street or for a high floor duplex at the Pierre Hotel. These active $20m+ listings also include such illustrious addresses as 810, 834, 960, 998, 1020, 1040 and 1060 Fifth Avenue and 720, 740, 770 and 778 Park Avenue, not to mention 101 Central Park West. Included in these is the legendary Astor apartment, Nelson Rockefeller’s former apartment, the Kress family penthouse with a ballroom and terraces and the William F. Buckley and Marietta Tree maisonettes. It has been a very long time since buyers have had such a selection of quality, not to mention provenance. One could easily argue that the coming months will present some excellent buying opportunities. This is especially true of East River locations, such as One Sutton Place South and East 52nd Street, where properties were inordinately undervalued even before the current malaise.

Cooperatives: Number of $5m+ Transactions by Quarter:

Cooperative Transactions Above $5,000,000:

Townhouses: While not as strong as the cooperative market, the $5m+ townhouse market also broke many records, due mostly to sales in the first quarter of 2008. Total sales exceeded the $1 billion mark for the first time, increasing 26.1% to $1,219,663,940 in 2008 from $966,945,094 in 2007. The number of sales rose 19.3% to 105 in 2008 from 88 in 2007. The average sale rose 6.9% to $11,615,847 in 2008 from $10,864,522 in 2007 while the median sale rose 5.7% to $8,350,000 in 2008 from $7,900,000 in 2007. Like cooperatives, the spread between asking price and selling price increased to 6.4% in 2008 from 5.6% in 2007, but the percentage selling at or above asking price remained relatively unchanged at 28.9%. Like cooperatives, the statistic that is most telling of the times is the almost doubling of the number of sales over $20m to 13 in 2008 from 7 in 2007. Interestingly, 9 of the 13 sales over $20m closed in the third quarter of 2008.

The highest sale was $49m for the 48 foot wide townhouse at 14 East 67th, formerly owned by magazine publisher Bob Guccione, which had grand architectural spaces and a full swimming pool with grotto. Also of note was the fourth largest sale for $34m at 94 Jane Street. This 70 foot wide residence featured a remarkable renovation with 20 foot ceilings, a 75 foot entertaining room and a private driveway. Breaking all downtown townhouse sale records, this property sold at about $5,375 per square foot. Another interesting and record breaking sale was at 7 Sutton Square for $32,500,000. Also with a beautiful renovation and containing unique architectural elements, this house was so appealing that it went for $7.5m over its asking price of $25m. These last two sales, both record breaking for their neighborhoods, are the classic examples of the early 2008 market when buyers would pay extraordinary prices for a unique trophy, preferably perfectly renovated.

Like the cooperative market, the current pending $5m+ townhouse sales reflect the new economic reality. There are now 9 contracts signed over $5m as we enter 2009, 2 with asking prices over $20m, versus 33 over $5m at the same time last year with 1 asking over $20m.

As we enter 2009, there are 206 townhouse listings over $5m, with 23 of them over $20m and ranging to $75m for a 45 foot wide limestone mansion at 22 East 71st Street, whereas at the beginning of 2008 there were 113 townhouse listings over $5m and 15 over $20m and ranging to $59m.

Because 40% of all $5m+ townhouse sales occurred downtown in 2008, it is feasible that the townhouse market might be more vulnerable to the downturn in 2009 than the cooperative market due to downtown’s appeal to young, Wall Street oriented buyers. Meanwhile, the overall townhouse market will also present many good values going forward.

Townhouses: Number of $5m+ Transactions by Quarter:

Townhouse Transactions Above $5,000,000:

		2008	2007	2006	2005
East 60's	Highest price paid in Millions	$49.0	$50.0	$28.5	$31.3
	Total number of Transactions	12	23	13	15
East 70's	Highest price paid in Millions	$35.0	$23.0	$53.0	$17.0
	Total number of Transactions	15	17	22	13
East 80's	Highest price paid in Millions	$12.0	$15.4	$25.0	$12.2
	Total number of Transactions	3	7	6	4
East 90's	Highest price paid in Millions	$27.0	$10.8	$6.9	$10.8
	Total number of Transactions	7	2	3	10
West Side	Highest price paid in Millions	$13.5	$14.5	$16.5	$10.5
	Total number of Transactions	15	10	10	10
Downtown	Highest price paid in Millions	$34.0	$33.1	$15.0	$11.3
	Total number of Transactions	42	28	31	31

Conclusions: It seems too obvious to refer to 2008 as the best of times and the worst of times, but there it is. Due to the approximately 90 day lag between contract and closing, we can expect the numbers for at least the first quarter, if not the first half, of 2009 to be worse. Therefore, while it seems clear that the market has not yet hit its nadir, there are positive signs, the most obvious of which is that people are still looking at property, even at the very high end where there are currently so few transactions occurring. Currently, the mentality of consumers has turned away from luxury, not just for real estate but for art, jewelry and any truly lavish expenditures. Though many people have lost significant money, there is still a lot of liquidity in the market and, sooner or later, people will return to luxury items, especially for their own homes. And, sooner than later, Wall Street will reinvent itself.

We are beginning to see buyers reacting to some very good values in the market as prices come down. And, once prices have found their level, Manhattan real estate will be an excellent place to absorb some of the excess liquidity. Truly, “Res ipsa loquitur”…or the market speaks for itself.

Author’s Note: This report carefully researches all transactions over $5m that have been placed for sale on the open market, not simply those in Stribling’s system.